There is only one kind of tax for a Hong Kong company i.e. Profits Tax (Corporate Income Tax) which is at 17.5% on its assessable profits. There is no Value Added Tax (VAT), and no tax on dividend or interest income in Hong Kong.
Basically, a Hong Kong company is not subject to Hong Kong taxes if its operations are not carried out in Hong Kong. In determining whether a Hong Kong company’s operations are carried out in Hong Kong, all the company’s operations (starting from customers’ enquiries about product prices, place of orders from the customer, place of a purchase order to completion of sale and purchase) will be considered to find out which processes are carried out in and outside Hong Kong. The location of bank accounts is insignificant for this matter. For instance, a Hong Kong trading company with a bank account in Hong Kong will not be subject to Hong Kong taxes if:
1. it has no real office in Hong Kong and only uses our office as a registered office
2. it has an overseas office in which the company’s directors and staff are working
3. it has no staff in Hong Kong, its staff and directors rarely come to Hong Kong, e.g. about 2 weeks per annum
4. it negotiates and concludes contracts with suppliers and customers outside Hong Kong
5. shipment does not go through Hong Kong and arrangement of shipment is not done in Hong Kong
6. physical inspection of goods is not carried out in Hong Kong
We have assisted a lot of our clients to have successfully claimed for taxes not subject to Hong Kong taxes and some of them even have Hong Kong customers, Hong Kong suppliers or goods going through Hong Kong. However, any Hong Kong involvement will increase the possibility of being subject to Hong Kong taxes.
Whether profits are subject to Hong Kong taxes is a matter of fact not a matter of law, so it depends on the evidence you can provide. As the Hong Kong Inland Revenue Department will select some transactions and request all the documents relating to these transactions to be submitted to ensure that all the company’s operations are carried out outside Hong Kong. Therefore, you are recommended to keep all the correspondence for all the transactions e.g. faxes, emails, telephone bills, memos of meetings, purchase orders, sales orders, shipping documents.
A company can only submit a claim for offshore income together with its audited accounts and profits tax return, i.e. it has commenced business for more than 18 months, not before commencement of business.
A British Virgin Company (BVI) company’s situations are different. If all its directors, shareholders and staff are not Hong Kong residents, it will be considered same as other overseas companies even though its bank account is maintained in Hong Kong provided that it has no staff nor director working in Hong Kong. If it has Hong Kong suppliers or customers, it will only be considered as doing business with Hong Kong companies not doing business in Hong Kong.
An individual receiving salaries from a Hong Kong source will be wholly subject to Hong Kong taxes (Individual Income Tax) unless all the services under the employment are rendered outside Hong Kong. In determining whether all the services are rendered outside Hong Kong, the individual must be a visitor (i.e. not having a form of permanent base e.g. a home or property) and visits Hong Kong for whatever purpose not more than 60 days in the year of assessment. This is not applicable for Government employees, seafarers nor aircrew.
N.B. It should be noted that the information is presented in summary form for reference only and readers are advised to seek professional advice before formulating business decisions.